How To Handle Buyers Backing Out Of Property Sales

Selling a home can be a very stressful process for homeowners. This can especially be the case when the buyer unexpectedly backs out of the sale after the contract has been formed but before closing on the property. California law provides legal protections for sellers who want to buyer fulfill the contract and take possession of the property. One prominent solution is called Specific Performance.

Specific Performance in CA Law

Specific performance is a contractual remedy for parties that are ready, willing and able to perform on the terms of a contract; however, the other party has breached the contract and failed to meet the required performance under the contract. Ultimately, specific performance uses court orders to require the breaching party to fully perform their obligations under the contract.

In real estate contracts, specific performance is a common remedy for sellers to judicially force the performance of the buyer by court order. It is a way for the court to order the transfer of the property as a remedy in a contractual dispute when cash damages are not sufficient.

In order to have an action for specific performance, there must be proof of:
(1) A valid and binding contract between the parties with sufficiently certain and definite
(2) A mutual agreement of the remedy and obligations of each party;
(3) The performance, tender, or excuse for nonperformance of the seller bringing the action;
(4) Breach of the contract by the buyer; and
(5) Inadequacy of the remedy at law, such as monetary damages.

Contract and Performance

To be sufficiently definite and certain, the contract must contain enough essential terms so that both the buyer and the seller mutually agree on the sale of land. These terms include description of the property, price, important dates, etc. The seller bringing a specific performance action must be ready and able to perform under the terms of the contract. This means the seller must be ready to close on the property at the end of escrow.

However, the buyer has backed out of the sale. By backing out, the buyer has breached their duty to perform under the contract because they are refusing to pay the determined amount for the property when the amount it due.

Inadequate Legal Remedy

A legal remedy is inadequate when money damages are too speculative or the thing bargained for is unique. Property is considered unique under the law of specific performance. Therefore, in the case of a contract for the transfer of land, or an interest in land, whether by sale or lease, it is presumed that damages would not adequately compensate.

Accordingly, the seller can show that the buyers breach cannot be adequately compensated for in damages such as cash, because the proper remedy is the transfer of land from the seller to the buyer. Here, specific performance will be granted as a matter of course unless some other equitable reason for denial or defense is shown.

Defenses to Specific Performance

In specific performance action for the sale of land, defenses raised by the breaching party can include “unclean hands” (when the party seeking rescission is guilty of some wrongdoing in the transaction) or “laches” (when a party delays in bringing an action and the delay prejudices the other party).

If a buyer has backed out of the sales contract of your property or you otherwise find yourself in need of an experienced San Diego real estate lawyer, please contact our office at (858) 926-5797 or through our online contact form.